Katerina Swanson
The cost of fuel for farmers has been rising steadily over the years, with prices doubling or even tripling in some cases. In 2022, farmers in the United States and Canada faced significant increases in fuel costs, with diesel fuel prices averaging $5.70 per gallon in the US and $1.49 per litre in Canada. These rising costs have had a significant impact on farming operations, with some farmers having to adjust their routines and make costly decisions to compensate. The increase in fuel prices has also affected the cost of other goods and services associated with farming, such as fertiliser, crop insurance, and labour. With fuel costs showing no signs of decreasing, farmers are concerned about the future and how these rising expenses will impact their businesses and the wider economy.
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Diesel fuel costs
The rising costs of diesel fuel have a significant impact on farmers' operations. Diesel fuel is necessary for tractors and other machinery, and the increased prices mean that filling up a tractor can cost a farmer $1,000 per day, twice as much as it did a year ago. For some farmers, the cost of filling up their tractors has increased from $3,000 or $4,000 to $10,000 or $11,000. This has led to farmers adjusting their routines, such as reducing the amount of tilling they do, to try to compensate for the higher fuel costs.
The increase in diesel fuel costs is due to several factors. The invasion of Ukraine by Russia, a major source of fertilizer and oil, has contributed to the rise in prices, as has the ban on Russian oil imports to the US. The price of crude oil, which accounts for a large portion of the cost of diesel fuel, has increased due to supply and demand issues. Limited domestic refining capacity for crude oil supplies and the decrease in US weekly crude oil stocks have also contributed to the rise in diesel fuel costs.
The rising diesel fuel costs have had a ripple effect on other aspects of farming. For example, the cost of chemicals that farmers need has also increased due to the higher fuel costs for chemical retailers. Additionally, diesel fuel is necessary for transporting fertilizer, grain, and machinery parts, so the increase in diesel prices has indirect costs for farmers in these areas as well.
Some farmers are finding ways to mitigate the impact of rising diesel fuel costs. For example, Humphrey Banack, a board member of the Alberta Federation of Agriculture, purchased new fuel tanks to store fuel on his farm, allowing him to shop the market and buy fuel when prices are lower. Some farmers may also have the option to purchase futures contracts on fuel, locking in the current price for the next six months or year. While the future is uncertain, there is a possibility that diesel fuel prices may decrease in 2023, providing some relief to farmers.
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Gasoline costs
For farmers, the rising gasoline costs have a ripple effect on their entire business. The cost of filling up a tractor has doubled, with farmers paying $5 per gallon for fuel compared to $2 per gallon previously. This means that filling up a tractor can cost upwards of $1000, a significant expense for farmers, especially during the intensive farming season.
The increase in gasoline prices is due to several factors, including the invasion of Ukraine by Russia, a major source of oil and fertilizer, and the ban on Russian oil imports to the US. The limited supply of crude oil and the decreased production capacity in the US have also contributed to the rise in prices. Additionally, the cost of crude oil, refining, distribution, marketing, and taxes all play a role in the final price of gasoline.
Farmers are feeling the impact of these rising costs, and some have had to adjust their routines and business operations. The availability and timely delivery of gasoline have also become concerns, especially during the critical planting season. With gasoline prices continuing to rise and the demand for fertilizer increasing, farmers are facing challenges in maintaining their businesses and keeping up with the rising costs.
To manage the increased gasoline costs, some farmers have purchased fuel tanks to store larger amounts of fuel, allowing them to shop the market and avoid buying fuel at higher prices during peak demand. Others have considered purchasing futures contracts on fuel to lock in the current price for a set period. While there is uncertainty about the future of gasoline prices, farmers are hoping for a decrease in prices and a relief from the financial strain caused by the rising costs.
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Tractor fuel costs
In the United States, the average cost of diesel fuel, which most farm equipment uses, reached $5.70 per gallon, with coastal areas paying even more, at around $6 per gallon. This is a stark increase from the previous year, when diesel fuel cost around $2 to $4 per gallon. The surge in fuel prices has forced farmers to adjust their practices, with some opting to reduce tilling or delay planting to compensate for the higher costs.
The rising fuel costs are a result of several factors, including the invasion of Ukraine by Russia, a major source of fertilizer and oil, and the subsequent ban on Russian oil imports to the US. The law of supply and demand also plays a crucial role, with limited domestic refining capacity and reduced US crude oil stocks contributing to higher prices.
Farmers are feeling the squeeze, and it is affecting their bottom line. For example, a farmer in North Dakota shared that the cost of filling up his tractors and machinery rose from the usual $3,000 to $4,000 to a staggering $10,000 to $11,000. Another farmer in Iowa, who grows corn and soybeans, saw his fuel costs per acre double from $35 to $70.
To put it into perspective, a Canadian farmer with an 8,000-acre farm used approximately 176,000 litres of fuel in 2021, amounting to $142,000. With fuel price increases, his fuel costs for the following year were expected to reach $258,000, without any change in fuel consumption. These rising costs have forced farmers to adapt, with some investing in fuel tanks to store larger amounts of fuel and allowing them to shop for fuel when prices are more favourable.
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Fuel delivery
For example, Greens Energy Services provides on-site services, delivering diesel or gasoline to tractors, trucks, and heavy machinery. Their computerized tracking system instantly reports the precise amount of fuel delivered for billing and record-keeping. Diesel Direct also offers comprehensive fuel reports with every delivery on their cloud-based Fuel Intelligence Portal.
Shipley Energy provides remote monitoring and automatic refills to ensure farms always have enough fuel. They also offer emergency delivery services to prevent any loss of productivity due to fuel shortages.
With rising fuel costs, timely and reliable fuel delivery is crucial for farmers to manage their operations and expenses effectively.
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Carbon tax
Fuel costs have been rising for farmers and ranchers in the US, with the cost of diesel fuel, which most farm equipment runs on, averaging $5.70 per gallon across the country, and $6 per gallon on the coasts. This has had ripple effects on other areas of the farm business, such as chemical retailers, and has caused farmers to adjust their routines.
In Canada, carbon pricing has been introduced as a way to reduce emissions and pollution. This has impacted farmers, with the cost of grain drying and barn heating cutting into their bottom line. In response, the Conservative Party of Canada has passed Bill C-234, which exempts natural gas and propane used on farms from the carbon tax. This bill was introduced to address the strain placed on farmers, who have no other option to dry their grain, heat their barns, or run their operations. The Canadian government also offers a rebate to farmers, recognising that they may face higher costs and have fewer options to reduce their emissions. This rebate is a tax-free payment made four times a year in advance, before households face increased costs from carbon pricing. Additionally, farm businesses may apply for a refundable tax credit that refunds the money they paid for eligible fuel charges.
While some have criticised the carbon tax as an undue financial burden on farmers, others argue that it is necessary to address climate change and that farmers are inherently concerned about their efficiency and are willing to adopt technological innovations. The Greenhouse Gas Pollution Pricing Act, which includes rebates for farmers, has received support from the Agriculture Carbon Alliance, a group that is "not an anti-carbon-tax group". They recognise that carbon-intensive products and activities should be more costly than low-carbon ones, creating a financial incentive for people and businesses to pollute less.
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Frequently asked questions
The cost of fuel for farmers varies depending on their location and the type of farm they operate. For example, the average Canadian grain farm of 778 acres spent around £130,000 on fuel in 2021, with prices expected to increase in 2022. In the US, diesel prices have hit record highs, with some farmers paying $1000 to fill a tractor's tank, twice what they paid the previous year.
The price of crude oil is the largest contributing factor in the price of fuel. Other factors include refining costs, distribution and marketing costs, and taxes.
Rising fuel costs have a significant impact on farmers' operations. Diesel fuel is required for tractors and other machinery, and natural gas is needed for grain drying. As fuel prices increase, farmers may need to adjust their routines and make trade-offs in other areas of their business.
It is possible that higher input costs for farmers, including fuel and fertilizer, may lead to increased prices for consumers in grocery stores. However, this relationship is complex and depends on various factors, including crop yields and market demand.
One option for farmers is to purchase futures contracts on fuel, locking in the current price for a set period. Additionally, some farmers may invest in fuel tanks to store larger amounts of fuel on their farms, allowing them to shop the market and buy fuel at lower prices.
